Romana King is an award-winning personal finance writer, a real estate expert and speaker. She is the current Director of Content at Zolo.ca, where this article originally appeared.

real estate market Canada

The real estate market is never dull. Last year started off with a big nervous question: Will the Canadian housing market crash? In 2018, the new year started off with more of a sigh. Analysts across North America came out with various pronouncements of deceleration in activity and pricing, but the overwhelming consensus was that the nation’s real estate landscape would flatten out, even in the hot Toronto and Vancouver markets.

It wasn’t too bold of a prediction. Activity was way down in the summer months of 2017, even as the number of listings was finally growing. This prompted only incremental increases in pricing and a nation-wide expectation of a soft-landing for Canada’s property markets.

This flattening out of the market was happening well before the latest splash of cold water hit the fast-accelerating housing markets. That splash came in the form of amendments to mortgage regulations. Now lenders must qualify new borrowers —and those renewing or renegotiating with a new lender to qualify for a mortgage— using new guidelines. Borrowers are qualified now based on the posted rates, which are typically 200 basis points higher than discounted mortgage rates. These new regulations were announced in October and were officially implemented on January 1, 2018.

What does all this mean for the real estate market in 2018? It means a possible return to the norm —a reemergence of a more boring, stable Canadian real estate market.

Canada’s real estate is actually balanced

According to Robert Hogue, senior economist with RBC Economics, there is “limited downside risks to prices in the near term in Canada” as the majority of housing markets, including Toronto, are “in balance.”

Based on the sales-to-new listings ratio—where 50% is a balanced market—the overall Canadian market appears to be balanced, according to RBC Economics December Monthly Housing Market report. Toronto and Calgary are also in balanced territory while Montreal and Vancouver are still leaning towards a seller’s market.

Another way to determine if Canada’s housing markets are levelling off is to examine months of inventory. The number of months of inventory represents how long it would take to liquidate current inventories at the current rate of sales activity. In November 2017, there were 4.8 months of inventory in Canada, down slightly from 4.9 months in October 2017 and the four months of inventory that was recorded in the summer months in 2017. Given that the long-term average is 5.2 months, analysts are predicting that most Canadian market segments are cooling off and returning to a more balanced market where supply meets demand.

Some markets still sizzle

Despite the incremental rise in interest rates in 2017 and the recent mortgage regulation changes—both factors that are expected to cool activity across Canada—some markets are still quite hot.

The Greater Golden Horseshoe area, which includes Toronto, had only 2.4 months of inventory at the end of December 2017. While this is much better than the all-time lows experienced in February and March 2017—when inventory dropped to just 0.8 months—it’s still below the region’s long-term average of 3.1 months.

A surge in deadline activity in Toronto accounted for most of the increase in the last few months of 2017, explains Hogue in his December economic report. “More stringent mortgage lending rules coming into effect in January no doubt prompted many buyers to advance their purchasing decisions.”

But this last-minute year-end activity in 2017 is not likely to continue into 2018. Hogue’s outlook for the New Year suggests that further moderation of home sales activity across Canada will cool any price increases in the upcoming year. “Near-term volatility will be followed by a generalized softening in 2018.”

The least optimistic outlook regarding Canada’s real estate market in 2018 comes from the most unexpected place: The Canadian Real Estate Association. CREA, is the trade association that represents more than 100,000 real estate brokers, agents and salespeople across Canada. In December, CREA cut its home sales forecast for 2018. The association’s analysts cite the impact of tighter mortgage rules, the chill from the Toronto and Vancouver foreign buyers’ tax, as well as on-going affordability issues in the country’s biggest markets.

CREA predicts that activity (that is, the number of actual home sales) will fall 5.3% in 2018. This continued decrease in buying activity, combined with the 4% decline in activity in 2017, prompted CREA to anticipate a 1.4% drop in national average housing prices in 2018. The expected national average housing price for 2017 was $503,400.

If CREA’s prediction turns out to be true, 2018 will be the first year the national housing price will have fallen in Canada since the start of the global recession in 2008.

But the impact of a slowing real estate market will not be felt uniformly across the country. According to CREA estimates sales activity will decline across Canada (by 5.3%), as a well as in B.C. (by 3.7%), in Alberta (by 2.8%), in Saskatchewan and Manitoba (3.8% and 3.9%, respectively) and in New Brunswick and Nova Scotia (by 0.5% and 2.8%, respectively). The two hardest hit provinces will be Ontario, with an almost 10% decline in activity (9.6%) and Prince Edward Island, with a 7.4% decrease in sales activity.

The only provinces predicted to have increased sales activity in 2018—albeit at anemic rates—are Quebec (0.9%) and Newfoundland (1.3%).

What do these predictions mean for average home prices? Volatility. While Newfoundland is expected to have increased sales activity in 2018, its annual price change is expected to drop by 1.9% in 2018. Other provinces with price drop forecasts include Alberta (0.3%) and Ontario (2.2%). The prices in the remaining provinces will either flat-line—like in B.C. and Saskatchewan where 0% price appreciation is expected in 2018—or move up incrementally, like in Manitoba with a 1% average price increase, PEI (0.9%), Nova Scotia (2%) and New Brunswick (1.8%). Only Quebec average prices are expected to beat the national anemic rates, with a 4.2% increase in average sales prices.

What does this mean for buyers?

There are two strong headwinds when it comes to buying activity in 2018: Tighter mortgage lending rules and the threat of higher interest rates.

Because of tighter mortgage lending rules, buyers simply can’t afford to buy the same house as they would have in 2017. This could mean shaving anywhere from 5% to 25% off your maximum house-price budget—although consensus shows it will mean an 18% reduction in your maximum purchase price for one in six borrowers, who put down less than 20%.

One unintended consequence of this forced fiscal responsibility is that more buyers will end up competing for cheaper properties—possibly driving up the prices of condos and townhomes, properties previously considered more affordable.

This push for more affordable housing opportunities could be exasperated as potential buyers try to get into the market before mortgage rates rise. It’s expected that the Bank of Canada will continue with incremental increases to its overnight rate in 2018. While no one anticipates discounted mortgage rates to shoot up to 6%, the posted rates will hit this mark relatively quickly. The increase in mortgage rates will further erode a buyer’s possible house-buying budget, prompting more buyers to pull the trigger before being potentially locked out.

Based on all these factors, we shouldn’t be surprised by an active spring market, particularly in the condo and townhouse market segments.

As a buyer, you’d be wise to secure a mortgage pre-approval before shopping for a home. Don’t just do a quick, online calculation — talk to a mortgage broker. For those buyers struggling to get a loan, consider going through non-prime mortgage lenders. These alternative lenders specialize in buyers turned down by banks, as they allow for more non-traditional income and permit higher debt ratios (up to 50% total debt service ratio, versus the 42% guideline used by the banks). Another option is to increase the length of amortization on the mortgage, which lowers the debt service ratio used to qualify for the loan.

Just don’t expect to get all this help without paying for it. In the past, non-prime lenders have charged higher mortgage rates (to reflect the higher risk of the borrower). Going forward these non-prime lenders may opt to cut the rate but make up the lost revenue by tacking on a fee. The result: Higher risk buyers will end up paying more with fees for amortization periods longer than 25 years, as well as fees for holding less than 20% equity in the house and fees to get access to rates low enough to allow them to qualify for the mortgage.

What does this mean for sellers?

For sellers across Canada, it’s time to reset expectations. Gone are the days when you could expect to sell your home in a week or less (for more money than your neighbour, who only sold a month ago). Buyers are struggling to afford what’s out there and the result is a rise in inventory and a drop in sales activity.

In the last few years, a potential buyer ended up having to compete against other interests, such as investors, speculators and foreign buyers. Those in the market to make money have been pulling out—waiting for more certainty. That means fewer buyers in the market and fewer sales. The drop in sales activity will prompt price corrections and eventually, the market should stabilize in balanced territory. The investors and speculators may come back, at this point, but until then sellers need to readjust their expectations. The upside is that even a 10% to 15% drop in prices won’t reset a home’s value to pre-2016 price levels.

To stay competitive, consider scrutinizing current sales data for your street and neighbourhood. Walk through all open houses in your community, to get an idea of what homes look like before they sold (you can still get this sold data from your real estate agent). Finally, discuss with your real estate agent competitive pricing strategies.

What does this mean for current homeowners?

If you already own a home it’s time to do a little jig just don’t spend too long celebrating because it’s not all smooth sailing for current homeowners in 2018.

The biggest hurdle will be mortgage renewal. According to Bank of Canada analysis, half of all current mortgages will “reset” in 2018. What does this mean? It means 47% of mortgage holders will need to renew their mortgages; by 2021 another 31% of mortgages will need to renew and another 22% of that.

This surge of renewals will mean that these homeowners will have to make some tough decisions: Renew with your current lender and skip the mortgage stress test or shop around for a better rate and be subjected to the mortgage stress test.

For those homeowners who were proactive about paying off their mortgage debt and building up the equity in their home, this decision will be easy. You will qualify for a great rate whether you stay with your current lender or shop around.

But homeowners who refinanced and added more debt to their mortgage loans, or those that weren’t proactive about building up the equity in their home, may feel the pinch. Those that choose to stay with their current lender may find the rates are not as competitive, but may not have options elsewhere, as they’ll be subject to the new mortgage stress test.

Homeowners looking to obtain a Home Equity Line of Credit (HELOC) may be surprised at how much smaller this revolving loan will be in 2018. In 2017, anyone applying for a HELOC was stress-tested using the posted 4.89%. As of January 1, 2018, this rate increased to 5.7% (and will continue to increase as rate rise).

It’s worse if you’re a homeowner looking to refinance. Those looking to consolidate their debt through a refinance in 2018, may be surprised by the less than attractive mortgage rates offered to them, or the inability to qualify for the loan amount needed. Typically, those that need to refinance have debt ratios that are above average and this will be very problematic when trying to qualify under the new mortgage rules.

What does this mean for investors?

If you’re still in the market to buy a rental property, hats off to you. Many real estate investors were scared away in 2017, partly because of the crazy spring market and partly because of market uncertainty due to regulatory changes. But with the real estate market rebalancing and prices starting to level off of slowly come down, many investors may get back into the market.

While single-family detached homes are still golden gooses, it’s hard for small landlords and large institutional investors to earn a profit on this building type. The purchase price is often too high to make rental numbers work, unless you can secure more than one rental in the home and this comes with its own costs and headaches.

For those investors choosing to skip the single-family home and look at condos and townhomes, keep in mind that competition may increase in these segments quite substantially in 2018. More first-time buyers may be pushed into this pricing segment and this would mean even more competition for these units.

Old rules of thumb remain, however. Try to find units that are well capitalized (lower purchase price, higher rental yield) and, where possible, look for neighbourhoods that support renters, such as urban centres, university and hospital communities as well as commercial complexes that offer newly built retail and office space.

Any investor thinking of buying in 2018, should first start with a financial plan and a budget. Then talk to your accountant and mortgage broker to make sure the numbers work. If all this checks out and you’re lucky enough to find a property, then 2018 may be the year for you to become a landlord (and the real work begins).

Foreign home buyers scooped up a record number of residential properties in the United States in the last year, despite a rising dollar and political uncertainty, according to recent surveys.

The National Assn. of Realtors said foreigners bought 284,455 properties in the 12 months that ended March 31, about a third more than a year earlier. Dollar volume surged nearly 50% to $153 billion, also a record for the survey first taken in 2009.

Chinese nationals were the biggest foreign home buyers, purchasing $31.7 billion worth of property, up from $27.3 billion a year earlier and more than ever before, the Realtors said.

But the largest increase came from a surge in buyers from Canada, where prices have skyrocketed in recent years, partially due to Chinese investment there.

Canadians purchased $19 billion worth of residential property, compared with $8.9 billion in the 12 months ended March 2016, NAR said in its annual report on international investment.

Lawrence Yun, the association’s chief economist, said sky-high home prices in Canada, especially in the big cities of Toronto and Vancouver, were behind the surge.

The provincial governments overseeing those two cities have even instituted additional property taxes on foreign buyers, after complaints Chinese investors there were causing the market to spiral out of control.

Local Toronto real estate experts are saying that buyers are cashing out and using the money to buy smaller homes in Canada and second houses to vacation in the United States, usually in Florida.

The dramatic jumps come despite a higher U.S. dollar that has made properties more expensive for many foreigners.

In addition, the survey period includes the U.S. presidential campaign and the beginning of the administration of President Trump, who has a history of divisive rhetoric against immigrants and has called for restricting both legal and illegal immigration.

“The political and economic uncertainty both here and abroad did not deter foreigners from exponentially ramping up their purchases of U.S. property over the past year,” Yun said. “Foreigners increasingly acted on their beliefs that the U.S. is a safe and secure place to live, work and invest.”

Yun said buyers may have been motivated because of a rising dollar, eager to get into the U.S. market before their own currencies could buy even less.

Still, even with all that growth, foreign buyers only accounted for 5% of all previously owned home sales during the 12-month period, up from 4% in the prior survey.

California made up 12% of foreign-purchased homes by dollar volume, tied with Texas and second only to Florida, which accounted for 22% and where most foreign buyers are from Latin America and Europe.

Foreign buyers in California purchased $35 billion worth of properties, up from $27 billion a year earlier.

The national association could not provide data on the number of foreign sales in the state. But the increase in dollar value far exceeds gains in the median home price, which would indicate there were more sales as well.

Buyers from Asia and Oceania represented 71% of foreign home buyers in California compared with 51% a year earlier, said NAR in their report.

The survey results run counter to observations from real estate agents in Southern California, who said they have noticed a slowdown in Chinese buyers.

Agents have said luxury properties in the San Gabriel Valley marketed toward Chinese buyers are taking longer to sell, as Beijing has cracked down on the amount of capital that can taken out of the country for foreign investments.

She said there are far more Chinese buyers for properties under $1 million, but even that market is a bit slower than last year.

“You are facing the same problem” of stricter controls, she said.

However, William Yu, an economist with the UCLA Anderson Forecast, wasn’t particularly surprised over the increase in Asian buyers in California.

He said the most restrictive measure to stem outflows from China came at the end of 2016, meaning a good portion of the survey covered a time with less-strict regulations. As home prices have risen in California and capital restrictions increased, he said foreign home buyers from China might simply be casting a wider net for cheaper properties.

“California is big, and Los Angeles is big,” said Yu, who studies the effect of the Chinese economy on the U.S. “We are probably seeing more and more Chinese buying across the region than in the past.”

Still others were surprised over the report.

Leslie Appleton-Young, chief economist with the California Assn. of Realtors, said in addition to reports over fewer Chinese buyers, some agents in the Palm Springs area had Canadian clients looking to sell after the election, given the uncertainty over U.S. immigration policy.

Yun, in a news release, acknowledged Realtors in some markets have seen less interest from Chinese buyers this year and that foreign investment overall may not keep increasing.

“Stricter foreign government regulations and the current uncertainty on policy surrounding U.S. immigration and international trade policy could very well lead to a slowdown in foreign investment,” he said.

Nearly 6,000 Realtors responded to the survey, which the association said has a margin of error of plus or minus 1 percentage point. The number of homes sold and dollar volume are extrapolated from those answers.

The survey defines foreign home buyers to be non-U.S. citizens with permanent residences outside the country, as well as noncitizens who have lived here for more than six months on temporary visas or immigrants who have lived here less than two years.

The majority of properties purchased, 64%, were single-family houses, followed by condos, town homes, other miscellaneous properties and other residential land.

The median price of homes purchased by foreign home buyers was $302,290, compared with $235,792 for all homes sales. The difference is in part because foreign buyers tend to purchase in large, pricey metropolitan areas.